Correction expected after volatile week

by **Cals** Thu 02 Jul 2015, 01:05

Correction expected after volatile week

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By Benny Lee / The Edge Financial Daily | July 1, 2015 : 10:03 AM MYT

The market remained bearish last week as we had expected and selling pressure intensified last Monday on worries about the financial crisis in Greece which also affected the global stock markets. The FBM KLCI fell to its lowest level this year on Monday but immediately rebounded on Tuesday. Bargain hunters may have taken the opportunity to buy.

The KLCI declined 1.2% in a week to 1,706.64 points after rebounding from 1,691.92 points last Monday. The average trading volume increased slightly to 1.7 billion in the past week from 1.6 billion shares in the previous week. However, the average trading value fell from RM2 billion to RM1.9 billion.

Foreign institutions continued to sell on the weak ringgit. From Monday to Friday last week, net buying from local institutions was RM846.8 million while foreign institutions’ net selling was RM824.7 million. The retail market has been a little quiet with some net selling at RM22.1 million.

In the KLCI, decliners outpaced gainers 2 to 1. Top gainers were [size=14]Astro Malaysia Bhd (+4.8% from last week),Petronas Chemicals Group Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (+3.6%) and British American Tobacco (M) Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) (+2%). The top three decliners in the index were MISC Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-5.9%),Telekom Malaysia Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-5.4%) and Tenaga Nasional Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) (-3.2%).

As mentioned, global markets were worried about the crisis in Greece, which is also a eurozone crisis. Most markets in Asia ended lower last week. China’s Shanghai Stock Exchange Composite Index fell 6.5% in a week to 4,277.91 points. The index has declined 17% in three weeks. Japan Nikkei 225, which was at a 15-year high last week, declined 2.7% in a week to 20,235.73 points. Hong Kong’s Hang Seng Index increased 4% to 26,250.03 points and Singapore’s Straits Times Index declined only 0.7% to 3,317.33 points.

The US Dow Jones Industrial Average fell to its lowest level in four months last Monday. The US benchmark index declined 2.9% in a week to 17,596.35 points. Germany’s DAX Index fell 3.3% in a week to 11,083.2 points and London’s FTSE100 declined 3% 6,620.48 points.

The US dollar slightly rebounded on the euro’s weakness. The US dollar index rose marginally from 94.5 points to 95 points. Despite the ruckus in the equity market, Commodity Exchange gold declined from last week, falling 0.5% to US$1,179.60 (RM4,458.88)an ounce. WTI crude oil declined 3.3% to US$58.27 per barrel. Crude palm oil in Bursa Malaysia was directionless and increased only 0.5% in a week to RM2,230 per tonne.

The index fell to another week low. The index broke last week’s low and formed another temporary support at 1,688.44 points. The index may have strongly rebounded yesterday but the trend remained bearish as it continued to stay below the short term 30-day moving average at 1,740 points. The index is also way below the expanding Ichimoku Cloud indicator.

Momentum indicators like the RSI and Momentum Oscillator continue to indicate a bearish trend but there is a divergence forming. The MACD indicator is above its moving average. These indicators continue that the market is oversold and may find support. However, the index is trading near the bottom band of the Bollinger Bands and the bands are expanding. This indicates that the market is still strongly bearish in the short term.

It is still early to conclude that the KLCI has found its bottom after yesterday’s rebound. The market’s sentiment is still bearish. There are still no signs of the ringgit recovering and the stronger selling pressure from foreign institutions worries the market. Technically, there are no clear indications of the market finding support. However, after a volatile week, the market is expected to correct and turn directionless. The KLCI is expected to trade between 1,690 and 1,720 points. However, if the 1,690 points is broken, then the index could only find the next support at 1,670 points.

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Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [You must be registered and logged in to see this link.]. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.

This article first appeared in The Edge Financial Daily, on July 1, 2015.
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